Next Financial Group fined $1M for failure to supervise branch managers

Next Financial Group Inc. of Houston was fined $1 million today by the Financial Industry Regulatory Authority Inc. for failures to supervise its network of some 130 branch managers, also known as OSJs in the independent-contractor-broker-dealer industry.

Next Financial Group Inc. of Houston was fined $1 million today by the Financial Industry Regulatory Authority Inc. for failures to supervise its network of some 130 branch managers, also known as OSJs in the independent-contractor-broker-dealer industry.
Next Financial allowed its office of supervisory jurisdiction to self-police the handling of customer accounts without adequate review from January 2005 to November 2006, according to Finra.
Next Financial created a program at the end of 2006 using regional managers to review the OSJs’ transactions, but Finra said that system wound up being “unreasonable” because of the thousands of trades the three regional managers wound up reviewing.
The OSJs typically supervise and oversee reps’ offices in a particular region.
“The lack of reasonable policies and written procedures resulted in the firm’s failure to detect churning of customer accounts by an OSJ manager, Gregory Horton, and a broker, Timothy Shively, as well as excessive markups and markdowns on corporate-bond trades by another two brokers,” Finra said in its statement.
“As a result, customers of the firm, including elderly and retired individuals, lost about $768,000, which has been reimbursed.”
In separate actions, Finra barred Mr. Horton and Mr. Shively from the industry in January 2008 and October, respectively.
In a statement, Next Financial said it has made a number of new measures in response to the Finra fine. The firm said it has a new chief compliance officer, Robert Schlangen, and has more than doubled the number of analysts and examiners in its compliance department.
Finra also sanctioned Next Financial’s former compliance officer, Karen Eyster, suspending her as a principal for two months and fining her $35,000.
Finra is based in New York and Washington.